Inflation Report - what the experts say

The Bank of England has raised its growth forecasts says unemployment could
fall below the 7pc threshold by the end of 2014, raising possibility of
interest rate rise in 2015. Here's what the experts say.

The change in guidance suggests the Bank of England thinks it will begin to consider raising interest rates over a year earlier than it thought only three months ago. The Bank of England appears to be turning more hawkish.

this leads us to bring forward our forecast for the first interest rate rise from the end of 2016, to the start of 2016, but we are not confident enough in the sustainability of the recovery to forecast tightening monetary policy in 2015, especially due to the poor productivity growth seen.

The UK’s recovery has considerable momentum going into 2014, but whether the debt fuelled housing recovery translates into anything more than a short-term rebound in demand is questionable, particularly in the absence of wage growth outpacing inflation.

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With the UK jobless rate falling, sustained positive data on British growth and a housing market that is defying gravity, the timetable for interest rate rises is being brought forward.

If data continues to be strong, we expect the first rate hikes to be at the start of 2015

Jonathan Loynes, Capital Economics

We retain the view that interest rates will remain on hold rather longer than the markets expect, primarily because we expect inflation to remain weak even as unemployment falls.

However, we fear that Mr Carney and colleagues will have their work cut out to prevent market rates from rising further – potentially adversely affecting the economic recovery – if unemployment remains on its recent downward trend.

Howard Archer, IHS Global Insight

The message coming loud and clear from the Bank of England is that it remains in no hurry at all to raise interest rates despite the economy’s improved performance and a likely significantly faster fall in unemployment than the central bank had previously expected.

It is clear that the Bank of England wants to give the economy every chance to develop sustainable decent growth and not to risk choking it off by any premature increasing of interest rates.

Kathleen Brooks, Forex.com

The BOE did move towards the market’s view, as we expected. Going forward, the BOE can rest easy – inflation is falling while growth is rising, which can support policy remaining on hold for some time.

We believe we will have to see the entire economy get back above 2008-09 levels to spur the BOE to action, and that could still take some time.

David Kern, British Chamber of Commerce

We have supported forward guidance since its introduction, as it helps to underpin business confidence. But we have also always said that the 7pc unemployment threshold would be reached long before Q3 2016 as initially forecast.

These revisions imply that the threshold is likely to be reached around the first or second quarter of 2015. This is a sign that the UK recovery, although not yet secure, is likely to be stronger than people felt three months ago.

The Telegraph Investor

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